Did you ever see a jockey riding two stray horses at the end of a race? I’ve always been amazed at the ease with which an experienced jockey can get the two animals trotting along at the same time. However, woe betide the poor jockey’s nether regions if the two horses decide to head off in separate directions. Now imagine a jockey trying to straddle three horses?
The Irish economy is a bit like a jockey trying to straddle three horses. We need all horses running in the same direction and, broadly, at the same pace, for our policy mix to deliver the best outcome for our people.
The first horse is the British economic horse. This horse is by far the most important trading partner in terms of both employment and actual trade. By actual trade, I mean the labour-intensive trade that gives hundreds of thousands of people a living – agriculture, tourism and retail.
The second horse is the European, or German, economic horse. This horse is crucially important from a policy point of view, because its performance dictates our level of interest rates.
For a highly indebted population like ours, the German horse exerts far more influence than it would do if its influence were based on how many people are dependent on trade with Germany for their living. That figure is small – not derisory, but small – and yet the German influence on Ireland is huge.
The third horse is the American horse. The US is – on paper at least – Ireland’s biggest trading partner. This figure refers to the hugely capital-intensive, tax-sensitive multinational sector. Multinationals account for 90 per cent of our recorded exports, but less than 7 per cent of our actual employment.
American companies are why Ireland’s economic figures flatter to deceive. Without them, we’d be Croatia in the rain – a country with no real domestic industry bar food and tourists – the standard staple of the economically underdeveloped.
It is not hard to see why we need the third horse, the American one.
For the jockey (ie, Ireland), the best outcome is when all three horses are moving more or less in the same direction. When they head off in opposite directions, even having an Irish neck like the jockey’s proverbial you-know-what can’t help.
Last week, we got indications of where our three crucial horses are headed.
There was so much relevant economic data published during the week, it is difficult to know where to start. But let’s kick off with the big trends. If the numbers and the policy response unveiled last week become a trend, the main players in the global economy – our horses – are now poised to head off in very different directions.
This global divergence will have enormous ramifications for the Irish economy.
First, let’s see which way the horses are running.
In the US, the economy appears to be coming back to life, after years in the recovery ward. Unemployment figures published last Friday indicate that finally the chances of getting a job in America are improving. This caused a commotion in the financial markets, which were already spooked by the Federal Reserve’s indication that it will “taper off” its massive money-printing experiment.
Long-term interest rates rose dramatically on Friday. This is because many now think that the recovery will be strong enough to let the Fed ease up big time on printing money. Interestingly, this is what the Fed wants. After all wasn’t that what all the money printing was supposed to do?
It was supposed to kickstart the anaemic economy into life, and this would eventually be seen in fewer Americans kicking around with nothing to do all day. We are still a long way off from a victory for the Fed, but the financial markets seem to think that the Fed will win this one, unemployment will fall, and the Fed will take its foot off the printing accelerator. If the US manages to achieve this smooth lift-off, Ben Bernanke will join Pope John Paul II in the priority-boarding queue for sainthood.
So the odds are now on a US recovery: delayed, fitful, but a recovery nonetheless. This will send the dollar up and the US bond market down. A strong dollar always makes dollar investments in countries like Ireland more attractive. Good news for us.
Now let’s look at our first horse, the British mare.
The British broke with tradition last year by employing the Irish-Canadian Mark Carney as the Bank of England governor, which shows (among other things) how far the Irish of Gross Isle in Montreal have come over the years.
In his first outing as Bank of England governor last Thursday, Carney made it clear that the change at Threadneedle Street was more than cosmetic. Carney’s first move was to tell the world what his team was thinking.
“In the Committee’s view, the implied rise in the expected future path of Bank rates was not warranted by the recent developments in the domestic economy.”
This is a huge departure in terms of style – but also of substance. Carney is saying the British economy is still very weak, and that it will not be torpedoed by higher interest rates.
He is saying to the financial markets: chill out, there is plenty of time for rate rises, so at the moment let’s keep the patient in the convalescent ward. Again, good news for Ireland.
What about our third horse, the European or German nag? Well, here again, we had a significant policy shift from the ECB on Thursday. Following Carney’s straightforward statement about the British economy on Thursday, Mario Draghi went one better, saying that the eurozone would not see any rate rises for the foreseeable future.
This is hardly surprising, given the endemic weakness of the periphery and the political crisis in Portugal. However, what is different is that the central bankers are projecting forward and stating that they see weakness for some time to come in Europe; and, more importantly, that they will do what Bernanke did in the US and use all the tools in the monetary toolbox to stave off depression.
What does this mean for Ireland? It means that there will be absolutely no interest rate rises for some time. This must give huge relief to the thousands who are just about breathing, despite enormous debts.
Regular readers will know that I don’t believe that their debts should be, or will be, paid -but, ahead of that natural debt deal, this is at least a bit of breathing space.
As for Britain being kept on the monetary life-support system, this again can only help Irish agriculture and tourism dependent as we are on the whims of the English consumer.
Finally, if the dollar were to rise, as I expect it to do, multinational profits when translated into dollars will go up. If this makes a 50-50 decision to invest here or not more likely to fall in our favour, then this too is a small bit of supportive news.
While all this suggests that the international news has been a little bit helpful during the week, it also reveals an obvious lack of joined-up thinking in Irish policy when we are in the lap of the gods of three very different economies, and very different policy-making elites.
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Ping
Pong…
Its a Three Legged Race
Confirmation that Ireland is tying to make the best out of being a colony rather than an independent nation.
“Finally, if the dollar were to rise, as I expect it to do, multinational profits when translated into dollars will go up.”
I don’t get it. If the dollar strengthens, as it has been, multinational profits earned in other currencies will go *down*. A few weeks ago, each euro you earned translated into $1.35. Now it gets you $1.29. How is that not a *loss* of profits?
“Our Policy” & “Irish Policy” = Civil Service policy = maintain the status quo. There is no policy other than fill the trough. The figures for the multinationals is very interesting, 90% of exports, 7% of employment. And yet every time you hear even the smallest job announcement it’s accompanied with the pathetic scramble by politicians to get to the photo op. “We created x jobs” is their war cry. Our politicians & civil service hero worship the multinationals and show nothing but contempt / scepticism towards indigenous SME’s. They just don’t understand hard work or dedication, these factors alone… Read more »
Perhaps the US recovery is more myth and mirage than substance as the reduction in unemployment sees people no longer counted as they no longer qualify for benefits and others resort to part time lower paid jobs just to survive.
The old grey Mare she ain’t what she used to be.
http://www.thedailybell.com/29358/Anthony-Wile-The-Danger-Beyond-Employment-Numbers
LME Fraudulent futures contracts.
Selling gold that does not exist to drive the market price lower. Condoned and ignored by regulators This fraud is allowed and encouraged by government.
Corruption reigns
http://www.bullionbullscanada.com/gold-commentary/26273-fraud-confirmed-100-day-delay-to-take-bullion-delivery-in-london-
Never mind backing three horses. all are losers.
for the real US recovery see how 24% unemployment fits this description.
http://www.shadowstats.com/
Germany, UK and America…That’s what our host says defines Ireland’s economic path. And if we get a nice weather in July, Aug and Sept, it’ll be even better. I take all these statements on employment, interest rates etc with a grain of salt. I guarantee there’ll be a reversal or other set of circumstances that’ll pop up a yield the opposite result in the weeks to come and the markets will flip to that like a blind herd of lemmings. A lot of the data being read out are from official statistics and are subject to interpretation and they are… Read more »
Loss of bond values, rising interest rates and increased inflation make gold the go to safe haven asset. –John Williams
http://www.goldmoney.com/podcast/john-williams-safe-haven-flight-will-be-to-gold.html?utm_source=english-subscribers&utm_medium=email&utm_campaign=w27-2013-newsletter
I say farmland too. Grow all the vegetables, fruits and nuts you can get planted. Add a greenhouse (Polytunnel) for something more tropical!
cow and a pig if you have the room. Few hens, ducks etc.
Whitewashing the innocents: Horses they are a herd animal – wildebeest -sheep – all easy to lead over a cliff… Reinhart and Rogoff’s Pro-Austerity – fait money – wall street – herd – Mark Twain’s Tom Sawyer knew this when he got the herd to whitewashing Aunt Polly’s fence Crazy Horses; probably the best boy band song ever: http://www.youtube.com/watch?v=qMM3MgS4yxc Mr. Ed : http://www.youtube.com/watch?v=y_PZPpWTRTU Did somebody say horse shit? Enjoys the sun below is the soundtrack for your unemployed broke day in the sun: Always Look on the Bright Side of Life: http://www.youtube.com/watch?v=jHPOzQzk9Qo Like Tom Sawyer Enjoy the sun while insider… Read more »
I am suspicious of the US economy turning around as we’ve heard about various economies ‘turning the corner’ so many times already. In my mind I can’t help but come back to how money is created in line with debt. How can the US economy recover while maintaining a sustainable national debt, let alone sustainable personal and business debts? If the economy expands this can only be accompanied by rising levels of debts which will ultimately lead to another financial crisis, much sooner than we might think. Resolving the debt crisis can only come with the creation of debt-free money… Read more »
***”While all this suggests that the international news has been a little bit helpful during the week, it also reveals an obvious lack of joined-up thinking in Irish policy when we are in the lap of the gods of three very different economies, and very different policy-making elites.”***
Who would argue with the above, we need a fix not a statement of the obvious…
Just read an article in today’s FT about US turnaround. Did you know that ordinary Joe Soap consumption represents 70% of US GDP and 16% of global demand. So basically, what our host is really saying is we pretty well depend good ole US of A ordinary John Doe dropping down to his store and buying a flat screen TEEE VEEE. Bernanke has to be extraordinary careful about how he unwinds QE and lets interest rates climb. Too fast and he kills off poor Joe – whose currently meagre income sudden gets swamped by all those repayments. A jump from… Read more »
What is this “we business” ?
The local gombeen establishment might be backing three horses, but they are riding one populace…..
Horses? Who’s playing?
It takes a bit of Spanish humor to make sense of the Irish carry-on
Goya – They Who Cannot
Hilarious!
With the EU/USA trade talks underway we get GM foods, more Hollywood, more Google /cloud /spying and corn syrup resulting in 3 headed horses, mono culture, no privacy and obesity.
What odds would paddy power give a 3headed horse? – Aporia should have been the title of David article.
Jim Clifton is Chairman and CEO of Gallup. Says… *****”””””While living in Lincoln, Neb., many years ago, I drove by a man’s house that had caught fire and was burning — the roof was in flames. Oddly, the owner was out mowing his front yard while his house was ablaze. He just kept his head down and mowed, as if nothing was going on around him. That image came back to me last week as I was reading The Wall Street Journal, The New York Times, and The Washington Post. I read a lot about immigration, gay marriage, and the… Read more »
Steep Descent: 40% of All U.S. Jobs are now low-wage 9 July (LPAC) The Labor Department report of 430,000 part-time jobs being created in the United States in June, and 170,000 full-time jobs being eliminated, has jolted the financial-media fantasy of a U.S. “recovery” contrasting to the increasingly deep European recession. The Federal Reserve is searching for the elusive “exit” from massive money printing because it sees increasingly ominous debt bubbles, not because it sees “recovery” coming. — Now what was that “recovery” again? This stuff is aped all over the EU, wherever some jobs are to be found, that… Read more »
Losses, unrealized losses and undisclosed losses. Losses to be or not to be? BANKS `UNREALIZED LOSSES’ WILL CUT LENDING FURTHER July 8, 2013 (LPAC) — Following a two-month drop in bond markets in which interest yields have suddenly risen between 1.25% and 2.5% depending on the class of bonds, the Wall Street Journal reported July 8 that “Recent Fed data showed that U.S. banks have seen billions in unrealized gains from their securities portfolios evaporate as interest rates rise…. Gains in these portfolios fell from more than $40 billion at the beginning of the year to around $6 billion. Banks… Read more »
FG et al are perversely “burning the bondohlders”, one set that is – the Irish Credit Unions.
http://www.irishtimes.com/business/economy/ireland/credit-unions-the-only-anglo-bondholders-the-government-has-faced-down-1.1456844?page=2
The stench of hypocrisy! Not touching the anonymous global billionaires.
I asked a question in a previous DmcW article. The credit unions are currently being centralised with a back office operation controlling funds and front of house being reserved for the local yokels. What are the chances of a further theft of shareholder funds along the lines of the Cypriot raid on private property?
I asked a question in a previous DmcW article. The credit unions are currently being centralised with a back office operation controlling funds and front of house being reserved for the local yokels. The mechanism will be perfect for a systemic governmentnraid on Irish credit union shareholders private property based on the Cyprus model. What’s the time frame?
and in the news today depending on one strain of crop seed could starve us all WHEN it fails…
http://rt.com/usa/gmo-corn-fails-against-pests-863/
An economist nightmare the man made plague – “Super Weeds and Wonder Worms: GMO Corn’s Legion of Doom”… “””””CORN IS ST. LOUIS-BASED MONSANTO’S BIGGEST BUSINESS LINE, ACCOUNTING FOR $4.81 BILLION OF SALES, OR 41 PERCENT OF TOTAL REVENUE, IN ITS 2011 FISCAL YEAR.”””””” “””Monsanto’s GM corn and soybean seeds have become so widespread over the past two decades that now, a new crop of “superweeds” have evolved to resist these potent chemicals. Now, insect resistance to Bt toxin is developing in the US corn belt. Root worms exposed to it seem to have become immune, breeding an unprecedented colony of… Read more »
Back to the main story on the 3 horsies! Whether we like it or not, full or near full employment now looks more and more unlikely. If you do not have the skills to participate, you are not going to be let in…FULL STOP. Every specialty seems to involve reducing effort or increasing productivity without human beings. As we race to the bottom in terms of labour costs, we race to the top in niche specialization. But is everyone capable of being in a niche? If this is so, how do we educate and make a new sustainable model AND… Read more »
Luddites crack me up – banging away on their laptops saying shut down science.
That’s a general comment not directed at anyone in particular.
http://m.guardian.co.uk/commentisfree/2013/jul/09/welcome-to-age-irresponsibility?CMP=twt_gu
6,500,000,000 ÷ 6,500,000 = ~ 1000 Holocausts.
Some people are clearly out of their minds.
Now shall we all have a nice cup of tea and discuss the finer points of ‘moral hazard’ or just read Kafka?
Apprentice, 9PM, BBC1.
The Interview stage.
An abject lesson in tosspotism.
For sale one Nikon D3 one Nikon D300 an Nikon 18-200mm lens and more
David, Gross Isle in Montréal????
I presume you mean Grosse Île.
Spelling mistakes make any article look unprofessional.
Both the Irish Independent and now even the Irish Times seem to be getting worse by the day.
Some do indeed protest too much Victoria.
Especially when GM biofuels perversities are found in their auto tanks.